Bipartisan Proposals on Drug Price Controls Threaten Innovation

For all the nasty partisan divisiveness in Washington, it’s often worth worrying more when both parties agree. A case in point is a potential left-right condominium on drug prices that should alarm Americans hoping a cure for cancer or Alzheimer’s arrives in their lifetime.

The United States is an innovator in producing new wonder drugs that keep patients alive longer and make their lives more comfortable.

This innovation is being threatened by a number of moves afoot in Washington.

At the end of last year, the Trump Health and Human Services Department proposed linking Medicare drug reimbursements to an "international pricing index" derived from drug prices in other developed countries, where drugs generally cost less than in the U.S. This would reduce the money available for research and development. But there are new developments.

In what the Wall Street Journal describes as an "emerging Bernie Sanders-Donald Trump alignment," Senator Sanders has advocated for legislation that would link the costs of U.S. drugs to the costs in other industrial such as Canada, the United Kingdom, Japan and other countries. In 2018, Sanders introduced the “Prescription Drug Price Relief Act,” which is similar to the current Trump HHS proposals, and gives us some idea of what the Senator will propose Thursday.

Since lowering drug costs is cited as a top concern of six in ten Americans, it is important to address these concerns. But there are serious drawbacks to price controls based on drug prices in other countries. We could come to regret these proposals when the development of new drugs slows dramatically.

The Wall Street Journal editorial observes:

Messrs. Sanders and Trump flog examples of how asthma and arthritis drugs are cheaper in countries where government runs health care. Under Bernie’s bill, the HHS secretary could break the patent of any drug that is “excessively priced,” which judging by the political pique would include all of them.

European countries make trade-offs that are severe but often not transparent. Britain’s National Health Service routinely puts conditions on which patients can receive oncology drugs, for instance. Some drugs are denied approval on grounds that they don’t produce results worth the cost, a judgment most American patients might prefer to make themselves. The Food and Drug Administration doesn’t consider cost, at least not explicitly.

Price controls in Europe mean drug companies must recoup most of their investment in the U.S. market. But the Sanders bill wants drug developers to spend years and take extraordinary risk to develop drugs, even as government could invalidate their patents on a political whim. This new political risk means less capital for drug development.

Price controls for drugs may be a hot topic in the upcoming presidential race.

And if you thought Senator Sanders' bill expands the role of government to its utermost limits, well, you haven't seen Senator Elizabeth Warren's bill yet: Warren actually wants the federal government to get involved in drug manufacturing. What could go wrong.

The Wall Street Journal editorial comments:

Senator Elizabeth Warrenwaded in recently with a bill to let the government manufacture generic drugs, which are the commodity version of a branded product. This is shooting at the wrong target, given that generic drugs represent 90% of prescriptions yet less than 25% of prescription drug costs.

Mrs. Warren says the government would step in to correct certain market failures—like shortages or a sudden price spike. For example, her bill directs the government to produce a generic insulin. Insulin is always at the center of the debate about drug prices because it seems outrageous that a drug discovered 100 years ago isn’t cheaper.

Yet the dysfunction in insulin markets is driven by a disconnect between the medicine’s list price, which increases every year, and the net price after rebates and discounts, which has held nearly flat. The difference is paid by patients who aren’t insured or who pay co-insurance calculated on list prices.

Mrs. Warren wants government to solve drug shortages created in part by government. Some hospital drugs are often in short supply because making these drugs in sterile facilities is expensive and difficult, yet government basically reimburses these drugs at cost. This means only large companies have the economies of scale to make the drugs, and even they sometimes can’t make money. If one of these companies stops producing the drug, a third of the supply can dry up.

These proposals can kill the goose that lays the golden egg. The golden egg is new medicines that perform seeming miracles. These cures don't come out of thin air.

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Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​